Mimecast Limited

Robert Sanders - Director, Investor Relations Peter Bauer - Chairman and CEO Peter Campbell - CFO

Ugam Kamat - JPMorgan Matt Hedberg - RBC Capital Markets. AJ Lubich - Jefferies Gabriela Borges - Goldman Sachs Jack Rohkohl - Dougherty & Company Hugh Cunningham - Oppenheimer

Thank you, Rob. Good evening everyone and thank you all for joining the call today.

As a team we are very excited by the continued momentum of the business and we are seeing increased awareness of Mimecast in the market, with strong demands for our products. We are signing record numbers of new clients and our retention of existing customers expanded again this quarter.

This growth has once again underlined the value of our long term investment in an integrated multiproduct suite with high quality enterprise grade capabilities and that’s built on a natively multi tenant architecture. So our ability to rapidly onboard protect and simplify key [ph] for thousands of additional customers this last quarter once again showed our ability to scale, and we will continue to make investments in our platform as we grow and seek to solve even more problems for our customers.

I’d like to provide the headline numbers and discuss in more detail some of the drivers of our momentum. A little later on the call, Peter Campbell will delve a bit deeper into the numbers and show how this momentum is translating into real value for our customers and shareholders.

We exceeded the high end of both our revenue and adjusted EBITDA guidance. Our revenue growth rate accelerated in the third quarter to 30% as reported and 39% adjusted for currency.

Now this acceleration in our revenue growth rate is the result of several successive quarters of strong customer additions. In the third quarter, 3100 new customers subscribed to one or more of the seven integrated products on our platform.

And this increases our expansion opportunity across our now 24,900 customers and gives us confidence our growth can continue into future periods. In addition to being very successful at attracting new customers, our revenue retention rate again increased to 112% reflecting both our high customer attention and the tendency of our customers to buy additional products overtime.

We believe our high customer attention is a reflection of the investments we’ve made over many years in our platform MIME|OS. The long arc of development with a consistent goal and architectural philosophy has resulted in a platform that’s both efficient and scalable to operate, powerful to innovate on and a delight for our customers to use.

Today, we process over 246 million emails everyday and we spool [ph] over 25 petabytes of email data for our customers, looking after millions of end-users globally. Not only a handful of email related technology companies can operate as a similar scale.

We are continuously storing more data while simultaneously showing a long trend towards even faster access speeds. We offer the industries fastest archived stretch [ph] speed at a petabyte scale.

Now recently we introduced new features to our Continuity Offering. This is a service the keeps email flowing to users when their primary mail service such as Microsoft Exchange, Office 365 or the G suite is offline.

Now we announced Continuity event manager to provide our customers with better visibility of the availability and performance of these mission critical email systems. Continuity event management provides an alert notification with the ability to use a single click to keep their staff productive during either planned or unplanned on time.

And we recently published research that evaluated customers using Mimecast Continuity services. Customers’ who had a Continuity event in 2016 are 11% of those users invoke the service for a period lasting longer than 24 hours.

This represents 123 companies who would otherwise have had email downtime in 2016 that lasted more than 24 hours, really an eternity in today’s just in time world. For those companies on a clear illustration of the value of this service.

Now Mimecast for the first time acquired technology in the third quarter with a purchase of iSheriff. With this small acquisition, Mimecast added a team of skilled software engineers focused on cyber security.

We are rapidly integrating this groups Threat Detection and Threat Intelligence capabilities into our platform to benefit all our customers and further enhance our Targeted Threat Protection or TTP offering. This quarter, I’m also very pleased to say that Mimecast has been awarded certification to the ISO 22301:2012 Standard.

This is the international standard for business continuity management system issued by Certification Europe. The ISO 22301 standard stipulates the requirements for management system to protect against, reduce the likelihood of and ensure a business recovers from disruptive incidents.

This international standard is designed to keep businesses operational during the most challenging and unexpected circumstances, such as natural disasters, IT failures, supply chain disruptions, government interventions or other threats. Now leading industry research recently recognized Mimecast’s strength too.

Gartner name Mimecast a leader with both the greatest degree of complete [Indiscernible] and the highest ability to execute in their 2016 Magic Quadrant for Enterprise Information archiving. The Radicati Group named Mimecast a top player in their most recent secure email gateway report.

And Mimecast was also recognized as one of the highest rated public card computing companies to work for in a new list released by Battery Ventures and Glassdoor. The list highlights 25 publicly traded B2B cloud companies where employees report the highest levels of satisfaction at work.

Mimecast Company rating of 4.0 best at the broader average across Glassdoor of 3.3. Employee satisfaction is an important part of our formula as a business, and we believe satisfied employees produce a better customer experience.

High employee satisfaction also helps Mimecast to retain and attract new talent. One of Mimecast’s key differentiators is a seamless integration into the Microsoft stack.

Both Microsoft’s on-premise as well their cloud offerings and most of our customers use Microsoft Outlook, and through our product called Mimecast for Outlook our cloud services extend the capabilities of Outlook to enhance security, provide superior search capabilities, and of course to keep users productive when Exchange or Office 365 is unavailable. Now to this end, we launched Mimecast for Outlook version 7 in the quarter.

And this upgrade offers improved end user experience by providing better search capabilities and enhanced security management. Two quarters ago, we officially launched Mimecaster Central, a community for customers, partners and technical professionals to share best practices.

I’m excited to note that Mimecaster Central is now grown into a community of almost 25,000 registered members. In fact, in Q3, we added 2000 new members.

Now while we initially envision the forum as a reasons [ph] for customers, grown to be a great tool for us to better understand our customer’s needs, and to drive our product innovation. As you know, our channel partnerships are a very important part of our go-to-market strategy globally.

In this last quarter, we grew our channel business meaningfully. Now we expanded our senior management team with the addition of Eli Kalil, who joined us as Senior Vice President of Global Channels.

Most recently Eli was the Vice President of Enterprise Security Global Channel Partner sales for Hewlett-Packard Enterprise. Now in this newly created global position, Eli will be responsible for the strategy and implementation of all Mimecast channel programs and we are thrilled to have Eli’s skills and experience on our team and the growth of our channel relationships represents real opportunity for Mimecast to continue to build the momentum of our channel business, and we see that as an integral part of our opportunity to serve tens or even hundreds of thousands of organizations globally.

In addition to Eli, we have added talent in every department across the company. As a result of this growth, we are now exceeding our current facilities capacity especially in our North American operations.

In the coming quarters, I look forward to sharing with you the results of our search for additional space to further our growth as we progress towards our 2020 goals. Office 365 adoption is in our view a long-term trend in the market and continues to be a catalyst for the adoption of Mimecast services.

This quarter, customers choosing Mimecast to protect their Office 365 investments have increased from 17% last quarter to 19% this quarter. By providing layers of security, and off-site data archive, and a solution for uptime assurance, Mimecast makes customers even more successful and secure with Office 365.

TDP, Targeted Threat Protection, now this continues to be a big driver of demand for us as organizations continue to be challenged by determined and innovative attackers. Business Email Compromise, Ransomware and Spear phishing aimed at stealing employee credentials have been real menaces for organizations over the past quarter.

Our ability to protect customers from these diverse and highly effective threats has been central to our success. We continue to innovate within our TDP product family and are excited about some of the upcoming security innovations that we will be sharing with customers.

TDP is a powerful new customer acquisition tool as well as a large upsell opportunity. Adoption of TDP offering grew to 33% of our customers from 28% in the second quarter.

Now I’ll share with you some more color around the reasons customers of all sizes across industries and around the globe are choosing Mimecast in greater numbers. Of our top 20 deals in Q3, two are government entities, three are University and four are large healthcare organizations, and all of these deals were over six figures as we again improved our success in the larger enterprise segment.

[Indiscernible] Healthcare Company deployed Mimecast Targeted Threat Protection for their 50,000 users on Office 365. Concerned with a number of phishing attacks arriving on their network, they deployed a Mimecast proof of concept, a trial that highlighted the threats the current solution was not protecting them from.

Mimecast’s ability to provide better protection on our tight integration to complement Office 365 were deciding factors in this engagement. Then one of the world’s largest California-based wineries was using on-premise equipment from McAfee and determined the need for better defenses against e-mail borne cyber threats.

Additionally this customer was looking for a single call based repository from which it could run rapid e-discovery searches and manage legal holds. Mimecast’s ability to do both provide better secure e-mail and provide a solution for long terms data management for their global workforce, this won the engagement.

A large Australian university using a competitive email security solution faced a number of issues from both traditional spear phishing and whaling attacks across the staff network and university mailboxes. The customer was looking for a cloud service that would provide more agility, functionality and of course better security.

So Mimecast solved the customers problems by delivering locally-based services which also ensured compliance with the data sovereignty requirements. Then an American University was being barraged by business email compromise attacks, and they look for better protection for their 7000 users.

But prior to Mimecast the university was using a competitive on-premises email security appliance. This university needed protection for mailboxes running on Microsoft exchange on-premise, hosted on Office 365 and also some users on Google.

Mimecast’s ability to deliver true [ph] cloud solution for all users across all platforms in a single unified and easy to deploy manage cloud solution [Indiscernible]. One of Africa’s largest freight logistics companies required a better solution to combat malicious attachments and business email compromise attacks.

Mimecast’s Targeted Threat Protection was deployed as a proof-of-concept and after analyzing the results of this POC, the customer was confident with the protection TDP offered and moved quickly to deploy this solution to other 29,000 employees. So in summary, we have made steady progress towards our goal of being the leading provider of integrated, easy to use security and cyber resilience abilities for organizations large and small.

Our brand awareness is growing globally and our channel relationships are strengthening. We are increasingly recognized as an industry leader by third-party research and certifications.

And looking back at this quarter, we are exceptionally pleased that a record number of new customers chose Mimecast to protect their most valuable corporate communications and data. Our customer base continue to be delighted with our solutions, and continued the trend of adding additional services to their subscriptions.

And of course our financial metrics continue to trend upward, ahead of plan and our team is performing very well. So I am pleased to be sharing this progress with you today, and now would like to hand you over to Peter Campbell, our CFO to take you through the numbers in more detail.

Thank you, Peter. Q3 was another great quarter for the company.

Revenue growth and adjusted EBITDA continue to exceed the high end of our guidance range. Strong net new customer additions across all geographies, best-in-class renewal activity, and another quarter of increased upsell into our existing customer base combined to create another record quarter for us.

Third quarter revenue was $48.3 million, above our guided range of $44.9 million to $45.4 million. I am pleased to report that our revenue growth once again accelerated sequentially.

Revenue grew 30% on an as-reported basis and 39% in constant currency over the third quarter of 2016. Headwinds in the British pound negatively affected our growth resulting in a foreign exchange impact on revenue of $3.3 million.

We saw strength in all geographies and across all customer segments. Our net new customer additions reached record high this quarter as we added another 3,100 customers up from the 1,900 customers we added last quarter.

We now serve 24,900 customers worldwide. Customer additions increased across all segments this quarter, additionally we saw higher order values from new customers in each segment as we had continued success selling multiple products to our customers at the outset.

We noted on our last call that we anticipated a decline in the number of total customers coming to us from McAfee as their cloud product reached the end-of-life. However, I may have spoken too soon as we again saw a large number of customers moving off McAfee solutions this quarter.

As Peter Bauer noted in his customer stories, we saw several large customer wins from on-premise McAfee migrations. Despite shifting of resources away from the micro customer segment, we continue to see a large number of customers coming to Mimecast from McAfee hosted solutions.

As a result of these customers, and the ones I noted last quarter, our average order value across our base declined to approximately 8,100. Our North American market continues to be very strong for Mimecast.

North American revenue grew by 48% in Q3 as compared to the same period a year ago. The region now represents half of our global revenue.

We are in the early stages of penetrating the U.S. market and expect to see continued strong revenue growth for the foreseeable future.

The investment in sales and marketing we have made and continue to make our paying off. We are benefiting from more feet on the street, and increased awareness of the strength of our product offering.

In addition to these investments and strong U.S. growth, three elements driving our gross in the quarter were sales of our Targeted Threat Protection products to new and existing customers, the movement of companies to the cloud specifically to Office 365 and success selling our products to the McAfee customer base.

Sales of our leading-edge Targeted Threat Protection products continue to enjoy strong demand. During the quarter, over 2,100 customers bought the service which is now deployed with over 8,100 customers.

Demand continued from both existing customers and new customers. More than three quarters of our sales with TDP in the quarter were to new customers.

There continues to be a strong inbound demand generator as well as a substantial upsell opportunity for us as we offer the most advanced solutions to deal with customers email security issues. In total, 33% of our customers are using Targeted Threat Protection.

Customers are enhancing their cyber resilience by deploying Mimecast comprehensive cloud-based solutions, creating multiple layers of security. During the quarter, the number of customers using our services in conjunction with Office 365 increased to 19% from 17% last quarter.

Mimecast also benefits as customers adopt multiple services. We are seeing that our customers are users in conjunction with Office 365 are more likely to purchase not only our security product but also our continuity and archiving products as they adopt a broader strategy for protection of their assets in the cloud.

80% of our Office 365 customers have adopted Continuity and more than 60% have also purchased our archiving product. As you know, when customers purchase additional product with us, the margin on the incremental product is higher and they stay with us longer.

Our revenue retention increased again this quarter resulting from strong demand for additional products from our base of customers. This quarter, we experience 112% revenue retention rate ahead of the 111% we realized last quarter and the 109% for the same quarter in the prior year.

This continued improvement in our revenue retention rate is the result of the combination of strong customer retention and increasing outsell into our customer base. Now let’s turn to expenses and profitability.

For the third quarter, we recognize a 73% gross margin, and improvement from the 71% recognized in the third quarter of 2016. Gross margin fluctuates due to the addition of hardware, datacenter services and employees needed to onboard and serve our growing customer base.

We anticipate our gross margin will be in the 70% to 72% range over the next several quarters as we build out our capacity to serve our growing customer base. Third quarter was another quarter of investment for us, with operating expenses of $38.2 million as we continue to support our growth.

Specifically, we are investing in our sales force and marketing initiatives. Sales and marketing expense as a percentage of revenue was consistent with last quarter at 52% of revenue, but increased to $25.3 million from $22.9 million.

I should point out that we recognized commission expense in the period in which they are incurred rather than amortize them over the year. Consequently, our sales and marketing expense in the quarter was higher than originally anticipated due to the outperformance of our revenue.

As we see increased linearity and higher sales performance during the quarter, we may also increase our investment in sales and marketing in the same period. Even with these increased investments, adjusted EBITDA in the third quarter of $3.7 million exceeded the high end of our guided range of $2.6 million to $3.4 million.

Adjusted EBITDA margin was 7.6%, which reflects our balanced investments in R&D and sales and marketing, with an eye on the bottom line. We will continue to show progress towards our long term adjusted EBITDA target of 20% to 22% and will continue to also invest for growth as we progress in a measured way towards that goal.

For the third quarter, GAAP net loss was $3.4 million or $0.06 per basic and diluted share based on $54.9 million weighted average shares outstanding. Our non-GAAP net income, which reflects our GAAP net income exclusive of the effects of stock option expense was $0.1 million or nil for basic and diluted shares for the third quarter.

During the third quarter, we generated $2.2 million in free cash flow. We expect to continue to generate free cash flow in the fourth quarter.

Recall, free cash flow can fluctuate from quarter-to-quarter based on the timing and payment of capital equipment and other investments. We will be increasing our investments in capital equipment to support the large number of customers we have been adding has a build out our Mime OS platform to new levels of scale.

Reviewing the balance sheet, as of December 31, Mimecast had $102.3 million in cash and short-term investments. As Pete mentioned earlier, in the third quarter of fiscal 2017 we completed the acquisition of iSheriff for a total purchase price of $6.2 million in cash, of which $5.6 million was paid in Q3.

Total debt was $2.6 million at the close of a quarter, of which $2.5 million represents the current portion of debt. Now I would like to turn the focus to guidance for our fourth quarter and the full year.

For the fourth quarter of 2017, constant currency revenue growth is expected to be in the range of 35% to 36% and revenue is expected to be in the range of $48.6 million to $49.1 million. Our guidance is based on exchange rates as of January 31, 2017 and includes an estimated negative impact of $1.2 million resulting from the strengthening of the U.S.

dollar compared to the prior year. This negative impact was due to the British pound but was offset by positive impact from the South African Rand and the Australian Dollar.

Note that the inclusion of revenue related to the acquisition by iSheriff is immaterial to this guidance. Adjusted EBITDA is expected to be in the range of $3 million to $3.8 million, this is consistent with our continued strategy of investing in R&D and the build out of our sales and marketing organization globally.

Now from a full year 2017 perspective, revenue is expected to be in the range of $182.7 million to $183.2 million or 36% in constant currency. We are raising the midpoint of our revenue guidance by $4.5 million for the year.

Foreign exchange rate fluctuations are negatively impacting this guidance by an estimated $9.9 million. Adjusted EBITDA is expected to be the range of $11.2 million to $12 million as we continue to invest for growth, especially in sales and marketing but consistent with our strategy of sustainable investment.

We expect to show continued progress toward our long-term adjusted EBITDA goals. In summary, I'm pleased with the progress that company made through the third quarter of the year.

We have consistently raised and then exceeded our financial expectations. The company is growing rapidly and in exciting ways.

The acquisition of iSheriff enhanced our threat detection capabilities and added a strong engineering team. We are also adhering to our financial principles with regards to expenditures and profitability.

Our revenue growth accelerated this quarter to 30% on an as reported basis and 39% in constant currency. Our retention rate increased to 112%, Q3 was a great quarter and evidence of the products we have and our ability to execute.

So with that, I’d like to thank you for your time and open the line to your questions. Operator, can you please poll our first question.

Hi. This is Ugam Kamat on for Sterling Auty.

So, regarding to your guidance for the fourth quarter it calls for a margin compression from the quarter you just reported. Could you just provide a bit of more clarity on the nature of investments that you're trying to do and how should we think about these investments as we head into FY 2018?

Sure. Hi, there.

It’s Peter Cambell calling. So I’m assuming you’re talking about the adjusted EBITDA margin and the adjusted EBITDA guidance that we gave you for Q4.

So one thing I’d like the highlight about that is, throughout this year we’d exceeded our top line and as a result of that our commission expense has been higher and we do expect that our commission expense will also be higher in the fourth quarter as we get into the end of the year and people are hitting their accelerators. So, we do expect that that’s going to impact as a little bit in Q4 and that's why we maintain the year guidance at the top end of that $11.2 million to $12 million range, it was that $10 million to $12 million in Q3, so we kept the range, but we kept at the top part of that range.

So as we go and as we continue through the next year, we’re going to expect that will move, but we’re going to continue to capitalize on that opportunity. And as we’ve always said before, we’ll have a balance of that top-line growth and that bottom line adjusted EBITDA, but really the effect on his quarter is the impact of commissions which as you know we recognize upfront rather than amortized over the year as many other SaaS companies do.

Yes. That was helpful color.

Secondly, the customer additions in the quarter were pretty spectacular. Could you provide a factor in which the contribution came from, the micro customers from MSPs, from the McAfee transition you talked about last quarter?

So, we continue to benefit from the McAfee end-of-life and we saw some, obviously some pretty significant growth through Q3 with the addition of 3100 customers. With respect to the percentage of our new business and our new revenue in that period, it was approximately 20% of new business in that period.

So, not massive but still a significant benefactor of our growth in that period. So going forward we continue -- we expect to continue to benefit from McAfee, but we think that its going to be a smaller number of small customers and a larger number of large customers and its switches from cloud to the on-premise offering.

Additionally, I’d like to highlight that we have yet had a chance to sell into the base of all these customers that we've been bringing on board and we think there’s an additional significant upsell opportunity there for us as well.

All right. Perfect.

Thank you so much.

No problem.

Hey, guys. Thanks for taking my questions.

Congrats on the quarter guys. Well done.

I have a high-level question maybe for Peter Bauer. You know, the cross sell certainly impressive, the TTP looks like to me it did see down here 100% attach rate.

Could you refresh our memory in terms of, if I'm a customer and I take sort of the full suite of Mimecast? What does that look like on an annual basis today?

Great. So, thanks Matt.

We have seven products that we counts in the portfolio and on average if a customer purchases all seven of those, the sort of fully loaded user ARPU, it’s a round about $75.

Okay. That’s helpful and obviously you’re seeing some high contribution from the Office 365 from cross-selling, but $75 is kind of an all in price one?

Matt, I just want to add to that. So that is in all price one, like current seven products we have, but just wanting to add to that, we’ve seen a significant number of new adds of TTP this quarter and 1600 of those 2100 adds we saw it came from new customers, but not only is it a great cross-sell, upscale opportunity for us, its been a really significant inbound demand generator for us as well.

And you know, we now see about 38% of our customers that have it.

That’s great. And I guess without telling off the last question on the customer adds which was clearly I think it grow north of 60% sequentially.

If McAfee contributed about 20% of that, I mean, is it fair to assume that Office 365 is the biggest driver of that at this point that with TTP maybe being the second biggest driver of net new customer?

So, when I spoke to -- just to highlight there, when I spoke to about 20% of new revenue and new business, it was based on the revenue rather than a specific customer number. So we don't break out the amount of revenue that we get by customer in those bands.

I would highlight that TTP was a significant contributor of revenue for us in that period and even more than we were saying from McAfee end-of-life customers that were coming over to us.

Got it. Thanks a lot guys.

Congrats on the quarter.

Yes. Thanks, Matt.

I think you mentioned Office 365, I think the growth that we saw in Office 365 in this quarter was very strong as well moving from 17% of our customers up to 19%, so that is the other component there.

Thanks guys.

Hey, guys. This is AJ Lubich on for John.

Just had a follow-up on the customer additions, again very strong adds in the quarter and probably driven from some micro customers. I know you talk last quarter about reducing resources for wining those types of customers, but you been able to get very strong adds, well, also having a pretty phenomenal retention rates, does this success with those type of customers make you rethink that strategy and the resources that you’re allocating toward those wins?

Yes. Hi, AJ.

I would say no, if doesn’t make us rethink it. I think implementing a strategy like that takes a little bit of time.

And certainly you’re correct, in the large number of customers that we saw there were a fair number of micro customers that came on board and its approximately 800 additional McAfee customers over our historical norms there that came on in the period. So, that continued through the quarter, but our strategy not focusing on the micro customers and continuing to focus on the mid market still stands and that’s something we focusing on and continuing to build out this quarter and next quarter.

I think when we spoke about last quarter we were commencing the implementation of that strategy. Obviously, there was a huge number of customers that came on during that period, but we would expect that to slow going forward as we see more larger customers come on and less smaller customers.

I think that’s right, AJ, to add to that as we got to the close of December with the end-of-life in January there were lot of customers, where there were a bunch of customers that had perhaps postponed or held off from their migration and a little bit of an end of year rush over on to our system, so that gave us a an uptick in most customer numbers that we were happy with that we haven't gone after that specifically ourselves.

Great. That’s helpful.

Thanks. And then maybe just one quick follow-up on the – congrats on the acquisition of iSheriff, just wondering if you know as you look for now that you completed your first acquisition this potentially opens you up to do more M&A and if you think of doing tuck-in deals if there's any technology as you look at sort of current product portfolio that you have that you’d like to enter into that might be easier to buy rather than build?

Yes. It’s a key point there.

We very proud of the fact that we build everything to-date on an organic basis, we build an amazing platform. We bought a very great product portfolio, entirely organically; our revenue growth has all been done on an organic basis.

The technology tuck-in we really like to what the skills and the capabilities of the team and some of the componentry that we have, have been able to acquire through the iSheriff deal, and that additive to TTP, its additive to our daily prevention offering as well. We continue to scout for opportunities like that, our core orientation is to leverage the platform, but where there are opportunities to complement that and to improve or accelerate capabilities in the core platform with the right type of acquisition.

We keep our eyes open for that kind of thing.

Great. Thank you.

Great. Good afternoon.

Thank you for taking the question. I was hoping to talk a little the land and expand opportunities, some of the new customers are assigning today, maybe one way to look at would be if you think about the number of products that customers are buying, say, how could ramp over time and if you compare those customers to maybe a customers that’s been Mimecast for number of years, maybe some statistics help us think about how the customers you're seeing today and grow over time?

Great. This is something we’re really excited about.

With the multiproduct platform the seamless ability to add services to customers within the platform without its being a big provisioning requirements, the proximity of a customer to be able to adopt archiving for example when they’ve got our security offering, the ability to add on continuity, the upgrade path is just extremely easy and simple and its consistent administrative environment, consistent policy engine, all integrates really nicely with their -- particularly with their Microsoft investments. So, we’re very happy about that.

The levels of penetration that we have in the product today -- within the customer base today certainly give us an opportunity to pretty much double the revenue within the base by selling the full portfolio to the full customer base and we continue to work on that with the increase of revenue retention up to 112% this quarter. I think that's something that we are very proud of both from a retention point of view but also in terms of the adoption of some of the new products and services like TTP.

So it’s definitely a key part of our strategy is to land and expand and to see the development of those customer relationships. I think one of the other key trends is as customers are moving to Office 365, again moving in the latest quarter 19% of our customers in Office 365, as Peter mentioned in the prepared remarks they have a natural propensity to buy more products from us.

So whereas perhaps 50% of our on-premise type customers have got archiving, we see penetration levels more like 60% of archiving within the Office 365 base. Likewise with continuity types about two thirds within the average base having continuity within the Office 365 group, that’s more like 80%.

So we’re very excited about how that drives more of the upsell opportunity for us as well.

Just to add to that Gabriela and just is that -- that numbers have been quoted on 365, we’ve talked about those last quarter, I know they’ll continue through this quarter even with the significant customer additions that we had in the quarter and the more product that the customer buys, the incremental margin of each product is higher and they ended up staying with us for much longer the more product that they deploy.

That’s helpful color. And my second question was a high level question on macro and the budgeting environment, specifically if you look at the U.S.

market I think lot of data points runs small medium business optimism and emails still being a priority for companies. So if you just give us a sense how your conversations with customers attracting, is there more willingness to spend this year calendar 2017 versus last year?

In terms of the conversations with customers in the area in which the services that we provide, we haven’t – we’ve seen fairly consistent steady kind of trend and demand for our services. I mean email is one of the biggest threat vectors and attack vectors for the bad guys and the product that we provide are core products that every company needs and additionally the service that we provide within that particular threat vector are leading edge and the way in which we provide those services is unique to us.

So, as far as kind of spending, spending in our area in terms of email, email security, I think email has been under invested by a number of companies as they kind of threat vector for a number of years and we’re currently benefiting from that as companies moved 365 and are realizing their vulnerability and as new threats like whaling and business email compromise come out and we’re one of the few companies that has really uniquely ways of dealing with that.

I appreciate the color. Thank you.

Thank you.

Hi. Good afternoon.

One quick question, some of the usual suspects of few newer competitors in the Cloud email security market such as FireEye and Barracuda, made comments indicating strong performances from their solutions during the quarter. Can you provide some color on the broad competitive market and how you’re seeing competitive win rates evolve in bakeoff?

Great. So we see no change in the competitive landscape in terms of our win rates and our success.

I think there’s an important distinction between security offerings that are largely there to deal with the detection of advanced threats in email and a full scale secure email gateway offering with targeted threat protection capabilities. So, we speak quite a bit about the fact that when you talk about an email -- a comprehensive email security proposition it's ready comprised of an very important infrastructure component where all inbound emails are delivered to a cloud providers who receive those messages, its capable of queuing and spooling those messages, handling large volumes of data potentially for extended periods of the destinations are not available, the MTA function if you like, sophisticated routine potentially across hybrid environments, providing visibility of the [Indiscernible], spear phishing dealing with weaponized attachments, sandbox, evasive malware, business email compromise impersonation attacks, the kind of very security specific components.

Customers need the full gamut of that. They are special security organizations that are making offerings that they feel can make a contribution to the email security situation for customers, but there are really additional pieces of product that a customer could choose as opposed to looking after the infrastructure component and really being a viable alternative to something like Mimecast delivered from the cloud for a customer.

Got it. Thanks for taking my questions and congrats on the strong results.

Thank you.

Hi, guys. Thanks for taking my question.

You talked a little bit about CapEx spending going forward and we talk about increased space and about scaling the Mime OS, is there any more color you can give in terms of expected spending in those areas?

So I think sure, I think we’ve been growing well here. We’ve certainly grown passed own expectations and you're looking at 39% constant currency in the most recent quarter.

And so, some of the investments in order to kind of serve that customer base and that growing customer base, our trail, the addition of those customers into on to our service, so we will have to continue to spend on CapEx in order to reserve that base. And if you’re looking at 39% or so percent growth that we’ve seen in the quarter you could expect a similar amount of spend in orders to serve that base in terms of hardware and DC cost, in order to serve that existing base and to build out for the future opportunity.

So looking forward, we don't guide specifically on CapEx, but it wouldn’t be unreasonable to assume that the growth in CapEx should align very similarly with how our growth has being as we build out the first kind of layers to that great infrastructure to serve in a multi-tens of thousands of customers into the future.

Okay. Thanks.

And you had some larger deals that you won. And earlier, you asked about a focus on micro-deals and how it's going the other way.

Is there anything special you did to win those larger deals? Does it reflect a slight tweaking of your focus?

Are you still hard and fast on that SMB, and those were just a result of greater name recognition?

We’ve always done business across multiple segments, the bulk of our revenue in sort of mid-70 percentage points has being in the 100 to 5000 seat range with an almost equal amount slightly more about 5000 and slightly less below 100 and that ratio has remained a pretty consistent across the last few quarters including this quarter. We have of course seen growth across all these segments as we progress through the year and this quarter was not different.

We did an even larger number of six-figure deals this quarter than we’ve done previously. And so, I guess it's more of continuous application on those -- on each of those segments.

When one looks at it from a revenue point of view, but obviously when one looks at it from a logo point of view, microcustomers have the ability to add a lot more logos a lot faster. I think what is pulling us into some of these larger opportunities is A, that we have developed a lot more brand presence in the marketplace.

We received strong recognition from the lives of Gartner for our offerings and we’ve got a technology platform that can scale and I think make a unique contribution to the needs of some of these larger complex organizations particularly multinationals which have a really sophisticated requirements, needs for federated administration capabilities and we just really well-positioned as a as a cloud infrastructure to be able to solve some of their problems.

Okay. Thank you.

And one last question, you’re doing really well in the U.S., what are your thoughts on the Continental Europe?

Sure. So, I guess the first thing is, our growth in the U.S.

has been very strong, its a huge market and a big area focus for us and where you know, we put the lot of wood behind the arrow to kind of take advantage of that opportunity, but we have been selling into not only the UK, but Continental Europe for many years and we have significant growth in those markets as well. As we you look and kind of branch out and continue to grow, we’re going to be continuing to invest in all of our markets and we will be continuing to invest in not only the U.K, but Continental Europe going forward.

And I think the focus will remain in terms of the lion share of investment being in the U.S. and the U.S market, but certainly we want to ignore our kind of the core market to the UK and Continental Europe as well.

I think there’s also an opportunity that we are looking at closely with Continental Europe with the GDPR regulations coming through and data breach notification as well privacy laws and the burdens that those place on organization and we think we’re really well position with our offerings to help customer to comply with those laws and deals with some of those demands in a much more cost effective and elegant way. So we are excited about that opportunity in Europe.

Thank you very much for taking my questions. Congratulations on a strong quarter.

Thank you.

Folks, thank you very much for joining the call and for your interest in what we’re doing here at Mimecast. We’re thrilled with the results that we’ve been able to share with your today and we look forward to talking to you again in the next few months.

Thank you.